Military Cuts Loom as Late Campaign Issue

Press Release

For all the focus on the unemployment rate heading into the November elections, the layoffs that could most complicate President Barack Obama's re-election prospects wouldn't take effect until early next year.

Unless Congress and the White House reach a compromise by year-end, the Pentagon would have to slash roughly $50 billion more from the current fiscal-year budget in January. That prospect of wide layoffs could undercut Mr. Obama in battleground states heavily dependent on military spending, particularly Virginia.

Federal law requires companies to warn their employees of potential layoffs 60 days before they take effect, meaning thousands of workers could receive the warning notices on the Friday before the election.

The Obama administration, including Defense Secretary Leon Panetta, has warned about what these cuts would mean for military readiness and urged Congress to find savings elsewhere. But Mr. Obama has pledged to veto legislation offered by House Republicans in May that would roll back the military cuts using money saved by paring federal funds for food stamps, Medicaid and other social services.

Mitt Romney, the presumptive Republican presidential nominee, often tells supporters he would restore the military cuts. At a rally in Portsmouth, Va., in early May, he accused the president of "reducing our commitment to our military." The Republican also wants to add an additional 100,000 soldiers to the military, build more ships and update other military systems--promises that might complicate his pledge to get the budget back on a path toward balance.

Jennifer Kohl, communications director for the Obama campaign in Virginia, said the president "has invested more in our veterans than any other president in the last 30 years, and Virginians compare that to the Romney-Ryan budget plan, which could slash investments in the [Veterans Administration] by $11 billion."

Romney aides concede the Republican, who, like the president, didn't serve in the military, needs to strongly outperform Mr. Obama within this community to win a state like Virginia. Even as Mr. Obama earns high marks as commander-in-chief in most polls, a recent Gallup survey of veterans gave Mr. Romney a wide edge--58% to 34%--over the president.

Both campaigns are building broad outreach networks to veterans and other members of the military community. A Veterans for Romney event in Virginia this week will feature former New York City Mayor Rudy Giuliani. Mr. Obama returns to the Hampton Roads region of the state later this week as part of a two-day campaign swing through Virginia.

"We've never had a commander-in-chief and first lady so present in this military community," said Angie Morgan, a former Marine who talks to military families on behalf of the Obama campaign.

The question is whether fears about these cuts will spread to other members of the communities affected. Foreign policy and support for the military has been a back-burner issue so far, with most of the focus on the economy.

"When you start getting those pink slips coming in October, it would be my feeling that that will have an impact in the voting booth," said Rep. Randy Forbes, a Virginia Republican whose district would be hurt by another round of military cuts. "I cannot think of a more potent issue."

The potential cuts stem from last year's down-to-the-wire fight over extending the federal borrowing limit. The deal congressional Republicans cut with the White House required the Department of Defense to cut its budget by nearly $500 billion over a decade, with the threat of another nearly $500 billion in cuts if Congress can't find additional savings by 2013. The panel tasked with finding the savings failed to reach a compromise.

Talk in Washington now focuses on whether lawmakers can reach a deal before the cuts are automatically enacted. Sen. Carl Levin (D., Mich.), chairman of the Senate Armed Services Committee, recently told reporters that defense wouldn't be immune from additional cuts. But he held out hope that the cuts could be much less drastic if a deal were reached.

Mr. Levin said his "best guess" for a compromise figure would be an additional $10 billion-a-year reduction over the next decade. "I think defense has got to contribute, but I think we've got to be very, very careful that we don't do the draconian approach either on defense or the other important programs like education, health care and so forth," he said.

Some large contractors, such as Lockheed Martin Corp., LMT +0.16% have broadcast their concerns, warning employees and the public about what to expect next year. Recent government statistics, from the Congressional Budget Office and others, suggest the defense industry already is in the midst of a slowdown.

A widely circulated study for the aerospace industry predicted more than 350,000 U.S. workers would lose their jobs as a direct result of military cuts. Once the cuts are spread across the entire economy, more than one million people could be out of work, according to the study.

"Everybody feels it when you take this money out of the economy," said Stephen Fuller, a George Mason University professor who wrote the study and plans to release an updated version soon. He predicts the cuts will cause a recession in 2013. "When you stop paying these salaries, those guys stop buying beer and hot dogs," he said.

Few states rely as heavily on military spending as Virginia, home to the Pentagon and a tangle of bases and defense contractors. Mr. Fuller predicts the state would shed more than 120,000 jobs if all the cuts were enacted, ranking it second behind California.

"It's going to have a significant impact," said Rep. Rob Wittman, a Virginia Republican and member of the House Armed Services Committee. "The anxiety is building on a daily basis."

Just the prospect of additional cuts has defense contractors queasy. John McQuiddy, who runs a company that makes motion sensors used in war zones and along the U.S. border with Mexico, worries he might be forced to close the 27-year-old firm. He said revenue is half of what it was in 2009, the result of Congress's passing stopgap measures to fund the government for the past three years.

"We wouldn't even think about hiring anybody," he said. "Our thought right now is to just hang on."

Those fears spread beyond the defense industry. Joe Falk, a car dealer in Chesapeake, Va., said he has already seen "a slowdown in what people will spend on repairs and buying a new vehicle." He worries about paring his staff of roughly 70 employees.

"Almost everyone we sell to has a tie to the military," Mr. Falk said. "The trickle of that money into the rest of the economy is huge."

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